Analysts fell under Samsung Electronics Co Ltd’s marketing spell when they made what they now admit were hopelessly optimistic forecasts for its smartphone sales.<\/p>\n
Samsung’s huge share of the high-end smartphone market also persuaded some analysts to downplay industry data pointing to a fast-saturating segment, a reality that is already eating into sales of Apple Inc’s iPhone 5.<\/p>\n
Woori Investment & Securities, one of South Korea’s largest securities firms, cut its outlook for Samsung’s earnings and target share price on June 5. It was the first to adjust its view.<\/p>\n
A massive wave of downgrades has since followed, with forecasters including JPMorgan, Morgan Stanley and Goldman Sachs taking a harder look at their assumptions of how well the S4, Samsung’s latest Galaxy smartphone, would actually do.<\/p>\n
Sales estimates for the S4 were slashed by as much as 30 percent, stirring investor concerns over Samsung’s mobile devices division – the company’s biggest profit generator.<\/p>\n
Investors in the South Korean IT giant have paid dearly. Samsung lost nearly $20 billion in market value in a week as shares plunged following the downgrades.<\/p>\n
“I’d say most forecasters including myself had this conviction that they’ll outperform again – because it’s Samsung,” said Byun Hanjoon, an analyst at KB Investment & Securities. “They had beaten expectations before, which led many to believe they are bound to excel again with the S4.”<\/p>\n
The S4 sold 10 million sets in just one month of its debut in late April, outperforming its predecessor, the S3.<\/p>\n
Yet analysts now say the high-end smartphone segment is slowing, citing lacklustre prospects in Europe and South Korea in particular.<\/p>\n
The S4, in reality, also lacks any real wow factor, they say.<\/p>\n
“The Street, including Goldman Sachs, admittedly extrapolated the first-quarter earnings momentum through the year,” Goldman Sachs analyst Michael Bang said in a report. “This resulted in very optimistic earnings expectations.”<\/p>\n
Most analysts have reduced their estimates for S4 shipments to around 7 million units a month from their previous average expectation of 10 million.<\/p>\n
Bank of America Merrill Lynch has lowered its S4 sales estimate for this year by 5 million to 65 million units.<\/p>\n
Some analysts say a loss in potential sales of 5 million S4 units would cut around $1 billion of Samsung’s operating profit.<\/p>\n
“S4 sales are solid. It’s just that some analysts had higher expectations and then they lowered them,” J.K. Shin, head of Samsung’s mobile devices division, told reporters last week.<\/p>\n
Over the past month, 17 out of 43 analysts have downgraded their earnings estimates for Samsung, leading to a 0.6 percent drop in their average forecast for the company’s April-to-June earnings to 10.4 trillion won ($9 billion), according to Thomson Reuters StarMine.<\/p>\n
The lowered forecast, however, would still be a quarterly record.<\/p>\n
Many analysts say weaker-than-expected S4 sales will not necessarily stop Samsung from posting record quarterly profits. The company has diversified into many segments of the smartphone market, Merrill Lynch says.<\/p>\n
Still, the scale of the downgrades has cast a shadow on Samsung’s dominance in the $250 billion smartphone market.<\/p>\n
Doing it no favour, Chinese rivals are aggressively growing their market share, aided by strong sales of mid-tier models – a segment in which Samsung has relatively weak positioning, according to analysts.<\/p>\n
The mid-tier segment accounted for less than 15 percent of Samsung’s total shipments last year.<\/p>\n
Analysts say Samsung has to focus on this lower tier in the medium term.<\/p>\n
The high-end segment is losing momentum, with manufacturers struggling to differentiate themselves and consumers calling for a leap in innovation, they say.<\/p>\n
To be sure, Samsung has not sat idle.<\/p>\n
It has gradually expanded its offerings. Among four varieties of the S4 introduced in recent weeks, there was one stripped-down version called the Galaxy Mini.<\/p>\n
By comparison, Apple has had no new offerings since the iPhone 5 hit the market in September last year.<\/p>\n
Samsung bulls are also pinning their hopes on product launches later this year including the Galaxy Note 3, a phone-tablet hybrid.<\/p>\n
Some analysts say conservative forecasts will prevail.<\/p>\n
“Expectations for innovation have been lowered, and I don’t think there’ll be as much buzz surrounding new product launches as it used to be,” said Byun at KB.<\/p>\n
Samsung’s stock, which slumped to a six-month low on Thursday, inched up 0.9 percent on Friday.<\/p>\n
($1 = 1134.4000 Korean won)<\/p>\n
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